Surplus Extraction with Behavioral Types

TL;DR

This paper explores surplus extraction in mechanism design with behavioral types that reveal their private information, identifying conditions for full extraction and highlighting differences from traditional models.

Contribution

It characterizes conditions for full surplus extraction in a finite setting with behavioral types, extending classical results to new informational assumptions.

Findings

Full extraction is possible under certain belief conditions.

Behavioral types require weaker conditions than strategic types.

Standard convex independence is only needed among strategic types' beliefs.

Abstract

We examine the surplus extraction problem in a mechanism design setting with behavioral types. In our model behavioral types always perfectly reveal their private information. We characterize the sufficient conditions that guarantee full extraction in a finite version of the reduced form environment of McAfee and Reny (1992). We found that the standard convex independence condition identified in Cremer and McLean (1988) is required only among the beliefs of strategic types, while a weaker condition is required for the beliefs of behavioral types.